Friday, December 09, 2005

Putin Talks Tough Over Ukraine Gas

President Vladimir Putin struck a hard line Thursday in a dispute with Ukraine over natural gas supplies, saying that the country could afford to pay the market price for Russian gas.

Cabinet officials reported to Putin that Russia and Ukraine had failed to strike a deal on Russian natural gas supplies to Ukraine next year. 'Difficult work is under way and no solution has been found yet,' Industry and Energy Minister Viktor Khristenko said.

Can Ukraine afford to pay for natural gas at world market rates? That would mean a tripling of the price that Ukraine has paid in the past. And they might be able to do it in absolute terms. But that increase in cost would make industries that were once competitive, competitive no longer. Maybe that is a good thing economically, but it will be a severe shock to the whole system and people. One Russian analyst said that the prevalence now of mortgages for homes along with the increase in prices Russians are paying means that Russians may have to mortgage their homes to pay for the increased costs of things like energy. That might end up being true here. And there would be a major shake-out of industries and workers would suffer. Economists might say it is a kind of shock therapy needed to more rationalize the economy and that Ukraine and Ukrainians would benefit in the long run. And maybe they would, economically. But what it might do politically here would run from a house cleaning at least to disaster at most. Yuschenko will get the blame and anybody involved with him. It would make him radioactive politically. Democracy might also be blamed much as it was in Russia for all the economic problems. They could look for a strong man to set things right again.

The irony would be that Russian analysts have made the argument that Ukraine would follow them from the bright sunlight uplands of democratic freedom to the twilight world of the firm handed uncle that keeps everything straight. (Well, maybe they didn't put it quite that way.) "Just wait," they say, "what you see happening in Russia is in your future too." And it could happen because of Russian gas.

This is the one area where Tymoshenko would be right in putting this all down to clear Russian heavyhandedness attempting to affect the policies of Ukraine. But she is silent about it. I wonder why?